英国《金融时报》—Peer-to-peer lending takes root in China

The rich farming soil in central China is an unlikely field for financial innovation but that is exactly what it has become.

When Shang Meigong faced a cash crunch in her vegetable seed business in Xiangyang, Hubei province, she was turned away by local banks and decided to look to the internet for funds. CreditEase, the biggest of a fast-growing pack of peer-to-peer lending websites, paired her up with wealthy people across the country who lent the Rmb50,000 ($7,900) that she needed.

“It took just a few days to get it. The interest rate was lower than from loan sharks and higher than from banks, but the banks wouldn’t lend me anything,” Ms Shang says.

Peer-to-peer, or P2P, lending websites are at the leading edge of a microcredit boom in China. For a service fee, they connect people wanting to invest money with those looking to borrow small amounts, whether to attend school, buy a computer or start a business.

In so doing, they are providing a platform for loans to entrepreneurs who have founded some of the country’s most productive businesses and yet have long been neglected by banks, seen as too risky or simply too small.

The P2P boom has not been trouble-free. The bankruptcy last year of one lender, Hahadai, exposed the risks and prompted regulators to tighten their supervision, with the China Banking Regulatory Commission warning that some P2P companies “were unable to ensure the safety of the loaned funds”.

But advocates say the lending sites are beginning to reshape the face of Chinese finance and make China a focal point for the fledgling P2P industry worldwide.

“China has much more P2P potential than the US. You can understand the lack of credit penetration simply by being on the ground here,” says Roger Ying, who launched Pandai.cn, a P2P website, last year. “It is filling an important void in the financial system.”

The government has prodded banks to lend more to small businesses but banks still favour larger enterprises, which can offer property as collateral or have state backing. That gap in lending has opened the door to a new breed of lenders: microcredit companies.

There are 4,144 microcredit companies in China, a seven-fold rise over four years, and their total lending increased 87 per cent last year to Rmb369bn, according to government data. While many are bricks-and-mortar institutions, from pawn shops to trust companies, Taobao, the Chinese rival to Ebay, has demonstrated in the retail industry that online businesses can flourish in China because the internet reaches vast areas of the country still untouched by big brands.

The first P2P lending website was launched five years ago and Mr Ying estimates that there are at least 100 now. CreditEase says it alone has about 100,000 borrowers and that its loan book has been increasing 50-100 per cent year-on-year.

“It’s because people really need help and are not covered by the traditional banking system,” says Tang Ning, chief executive of CreditEase.
P2P lending has also grown rapidly in the US and Europe since its start in 2005 – especially since the global financial crisis when battered banks cut their lending to small borrowers.

The potential in China is far bigger. “There are about 60m micro-entrepreneurs in cities and 200m rural poor, so it is a huge market opportunity,” Mr Tang says.

P2P lenders in China have an image problem, however. They have been damaged by association with China’s “underground banks” – illegal lenders that charge annualised rates as high as 60 per cent. Established lending sites such as CreditEase and PaiPaiDai say their average rates for borrowers are much lower, at about 20 per cent.

There have been concerns too about the P2P business model. Borrowers typically must provide personal information, including their all-important ID number, which is released to lenders if borrowers default. Yet it is still unsecured lending, with no collateral posted.

Nevertheless, regulators appear to be gradually warming to the sector, which Mr Tang says is seen as a way to make “underground lending” more transparent.

The P2P companies have also become more upfront about confronting risks. At Pandai, Mr Ying has created a protection fund to partially backstop the lenders if borrowers default.

“It is still too early to pick winners from losers in microcredit,” says Victor Wang, a banking analyst with Macquarie Securities. “But if these operations are doing genuine business and not becoming loan sharks, then they are at least helping small corporations to have better credit access.”

CreditEase shines in China peer-lending market

CreditEase, China’s top peer-to-peer lending website, received votes of confidence from two important constituencies at the end of 2011: Wall Street and the Communist party.

Morgan Stanley’s private equity arm for Asia invested in the P2P company, following the lead of Kleiner Perkins Caufield and Byers, a Silicon Valley venture firm.

And Tang Ning, CreditEase’s gregarious founder, was named an Outstanding Chinese Communist Party Member – a public honour for a private businessman.

Even by the standards of China’s turbocharged economy of the past decade, CreditEase’s progress has been remarkable. From a handful of employees at its launch in 2006, the microcredit company now has more than 5,000 workers across 40 cities, making it one of China’s largest independent financial service providers.

Much more than building a slick website, Mr Tang says that CreditEase’s success has rested on it building a credit culture. In the US, where he studied and worked as a banker in the 1990s, he saw that credit cards, auto financing and small business loans were a basic part of life.

“Here, when you ask Chinese people if they trust the credit system, 10 out of 10 say no. That is a huge difference [from the US], representing a huge opportunity or – if not done well – representing a huge challenge,” he says.

CreditEase does not do any lending itself. Rather, like other P2P websites, it links small-scale borrowers with lenders.

He cites Muhammad Yunus and his pioneering Bangladeshi microlender Grameen Bank as an inspiration. A photo of the two meeting hangs on his office wall.

But whereas Grameen mainly targets impoverished women, CreditEase has a more flexible definition of the needy: anyone with a business idea who has been overlooked by banks. That can include salary workers with a side project.

“Chinese people are very entrepreneurial. They always have something going on,” Mr Tang says.

CreditEase has a 100,000-strong customer base and is developing its credit records, which are highly valued by banks that are now trying to reach out to smaller businesses. So long as he can help bring financing to China’s unbanked population – whether online, offline, peer-to-peer or via big institutions – Mr Tang says he will be satisfied.

The key is to find worthy borrowers. Mr Tang gives the example of a farmer who bought an ox with a P2P loan for Rmb580 ($92) three years ago. That animal is now worth Rmb4,500. “That’s quite a growth story,” he says.